Start as an agent and expand R&D outreach to become a comprehensive pharmaceutical company

Taienkang was founded in 1999. After more than 20 years of development, the company has developed into a comprehensive pharmaceutical company with rapid development of self-produced products based on agency business. The company's development process is divided into three stages: (1) agency operation stage (1999-2002); (2) stage of expanding the medical equipment field (2002-2009); (3) entering the pharmaceutical production stage (2009 to date). The actual controllers of the company are Zheng Hanjie and Sun Weiwen. Together, the two directly hold 36.33% of the company's shares. The company has a wide range of products. The company's agent products are mainly gastroenterological pills, Voritine, and Johnson & Johnson. Among them, gastrointestinal pills and voritine are the company's exclusive agent products in China; the products produced by the company are divided into chemicals, topical medicines and traditional Chinese medicines, medical equipment and hygiene materials. Among them, “Aitingjiu” dapoxetine hydrochloride tablets are used to treat premature ejaculation (PE) patients aged 18-64. They are the “first imitation” in China, and their quality and curative effects are the same as the original drugs. The product has been released rapidly since it was launched in 2020. In the first three quarters of 2023, the company's revenue reached 581 million yuan, up 1.34% year on year, and the company's net profit to mother reached 142 million yuan, up 11.53% year on year. The company's sales model is mainly distribution. In 2022, the company's distribution revenue was about 583 million yuan, accounting for 74.38% of the company's revenue.

Agents are making concerted efforts to produce their own products, and the three core varieties have built core competitiveness and gastrointestinal control pills: the competitive pattern is excellent, and the price increase strategy has brought new growth. The Gastrointestinal Remediation Pill is a laxative drug for gastrointestinal use. The company has been selling it as an agent since its inception, and the sales revenue of Gastrointestinal Remediation Pills increased from 1.282,800 yuan in the first year of agency to 158 million yuan in 2022. In the first half of 2023, gastroenterology pills contributed 96 million yuan in sales revenue, an increase of 55.80% over the previous year. In July 2023, the company signed a “technology transfer contract” with Li Wanshan of Thailand. The company acquired a full set of production technology for “and gastrointestinal control pills” owned by Lee Wanshan of Thailand, and carried out production line modifications to increase its overall production capacity. After this transaction, “Gastrointestinal Remediation Pills” will become the company's own OTC drug, further expanding the company's production and sales advantages in the field of proprietary Chinese medicines. It is expected that the volume and price of heostomy pills will rise sharply, bringing continued growth to the company.

Voritine: Original research drug for the treatment of fundus diseases. Popularity and channel advantages help steady growth. Voritine is the original research drug produced by Japan Daiichi Pharmaceutical Co., Ltd. The company is the general agent of Voritine in China. Compared with competing products, Voritine has a clear competitive advantage.

Aitingjiu+Aitingwei: Aitingjiu PE market has performed well, and Aitingwei is expected to expand rapidly in the anti-ED market. The anti-ED market is mature and competitive. The pharmaceutical companies that first entered the Chinese anti-ED drug market were all foreign companies. Taking advantage of price and channel advantages, Aitingjiu quickly expanded. In 2021, sales reached 154 million yuan, an increase of about 115% over the previous year, accounting for 23.55% of the company's revenue. Revenue surpassed Gastrointestinal Control Pills, making it the company's second-largest sales product. The “Aitingwei” tadalafil tablets independently developed by the company were approved in June 2022 and marketed for sale in August 2022. The quality and efficacy are the same as the original drug. “Aitingwei” tadalafil tablets and “Aitingjiu” dapoxetine hydrochloride tablets form a linkage effect to jointly open up the gender health market and increase the company's profit level. In 2022, the company's gender health medication achieved sales revenue of 229 million yuan, an increase of 48.48% over the previous year; in the first half of 2023, the company's gender health medication achieved sales revenue of 144 million yuan, an increase of 36.15% over the previous year.

Three R&D platforms to enable self-developed drug core technology

With the goal of becoming an innovation-driven comprehensive pharmaceutical enterprise, the company has established three major pharmaceutical R&D technology platforms: a key technology platform for functional excipients and nano drug delivery, a key technology platform for biomacromolecular drugs, and a technology platform for generic drug development and consistency evaluation. As of June 30, 2023, the company has 34 major independent pharmaceutical research and development projects. Of these, 7 have submitted drug registration approval applications, 1 has submitted clinical trial applications, and 1 has been approved to carry out phase II clinical trials, forming a good echelon. While strengthening the company's independent innovation, Taienkang also entered the vitiligo innovative drug circuit through its holding subsidiary Bochuangyuan. CKBA (boswellic acid) ointment will be the company's first step on the innovative drug circuit. There is no symptomatic drug treatment for vitiligo, none of the existing domestic chemicals have been approved for vitiligo, and there is a gap in the market. Currently, the domestic vitiligo research and development pattern is good, and the track is less crowded. At present, the company's CKBA vitiligo phase II clinical trial has officially started, and R&D and listing is expected to open up the ceiling for the company's future growth. Furthermore, CKBA can not only be used in the research and development of innovative drugs for vitiligo, but can also be extended to Alzheimer's indications. Currently, CKBA treats Alzheimer's animals by targeting MFE-2, with remarkable results and endless potential.

Investment advice

We estimate that the company's revenue for 2023-2025 will be 8.15/1,062/1,374 million yuan, respectively, up 4.0%/30.3%/29.4%; net profit to mother will be 1.79/26/359 million yuan, up 2.5%/49.3%/34.2% year on year, corresponding EPS for 2023-2025 will be 0.42/0.63/0.84 yuan, respectively, and corresponding valuations will be 43X/29X/21X, respectively. First coverage, giving a “buy” investment rating.

Risk warning

R&D risk; operating risk of agency operation business; risk of re-registration of imported drug registration when the registration certificate expires.